Gas bill shock: save money now

INDUSTRY VIEW

This week I decided to end a long and sometimes troubled relationship with British Gas, and as a result expect to be around pounds 300 a year better off. The break with the past came after a large international oil company offered to undercut my annual gas bill by 27 per cent, with no fuss and bother or even a requirement to change the meter, which will continue to be read by British Gas.

It is only at moments like that, when an offer of a real saving drops through the letterbox, that all the political rows and arcane technical arguments about deregulation in the gas industry begin to mean something.

The Government has been well aware of this fact for a long time. Why else would Tim Eggar, the industry minister, have spent yesterday in a summit meeting with the gas industry and its regulator, nailing down a timetable for spreading competition - and therefore price cuts - to all gas customers?

Privatisation has become a dirty word, at least in part because of the pay and profits controversy that has erupted over the last 12 months. Ministers now believe that their best hope of convincing electors that the sale of state utilities was worthwhile is to deliver new and much more dramatic price cuts than those seen in the first few years of privatisation. This was probably the main reason the Government was so enthusiastic about a pounds 50-a-head electricity rebate, which will follow the flotation of National Grid.

Indeed, thinking the unthinkable, it is possible that by the end of the decade privatisation will have become a popular vote-winner, if the introduction of competition to all domestic gas and electricity markets goes ahead smoothly. What a shame for Mr Eggar if a Labour government reaps the benefits of all his hard work.

Most domestic gas consumers will have to wait until 1998 before they are given the freedom to shop around. But anybody with a gas bill of more than pounds 1,100 - a level not difficult to reach in a draughty early-19th century house without cavity walls - is already entitled to make the switch. Rival gas companies are happy to oblige.

Competition is in fact already here for all customers whose gas consumption is above 2,500 therms, as a result of a gradual deregulation imposed by the Government to encourage fuel cost reductions for business. For business consumers, competition has sent prices crashing by an average of 40 per cent. British Gas's share of the business market has plummeted.

The legislation that sets the threshold at which competition is permitted specifies only the amount consumed, not the type of customer. It is this that allows a significant number of private buyers to scrape in under the wire and experience the financial delights of competition ahead of other consumers with smaller houses, better draught-proofing or more efficient boilers.

Although for most domestic consumers the savings will not be available for two to three years, those in Cornwall, Devon and Somerset will by now have had a glimpse of what competition will mean.

British Gas's rivals, such as Amerada Hess and Total, are bombarding the area with literature promising significant savings next year when a pilot scheme is introduced, after April. Companies are promising 15 per cent, or around pounds 50, off a typical gas bill.

But this may be the phony war in the marketing campaign, which could become more interesting if British Gas decides to punch its enormous weight when it responds with its own offensive, now being drawn up with the help of teams of external advisers.

One response could be a range of defensive new tariffs tailored to different types of home, coupled with price cuts across the board.

Not surprisingly, British Gas is portraying itself as the victim, squeezed by competition in the business market, hampered by long-term North Sea supply contracts at high prices and about to be crucified in the domestic market.

The company was recently distributing charts to the press to demonstrate how badly its share price was underperforming the stock market, a trend most FT-SE companies would prefer not to remind their investors about.

The British Gas agenda in trying to demonstrate its own weaknesses is transparently obvious. It wants to win a delay in the introduction of domestic competition, and put pressure on the Government to help get the company out of onerous North Sea contracts.

Most important of all, it must win a reasonable deal from Clare Spottiswoode, the industry regulator, for Transco, the pipeline company at the heart of British Gas whose regulatory and pricing regime is being overhauled. Transco will remain an enormous cash-generating monopoly, because all competing suppliers must pay to use it.

It is quite possible that competition will one day drive British Gas entirely out of the business of marketing gas to consumers, through voluntarily selling the business. This is a possibility some senior British Gas executives take seriously.

The real agenda, and the reason British Gas is playing up the multiple threats it faces, is that it must protect the profitability of the transmission business at all costs. In response, Mrs Spottiswoode should put the squeeze on as tightly as she can.